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Obama Economic Plan
Aimed at Those Under Strain

Tax Cuts, Health Care
Hit Populist Themes;
Opponents Find Fault
By SARA MURRAY and MICHAEL M. PHILLIPS
February 14, 2008; Page A10

Looking to establish his position as the Democratic presidential front-runner, Sen. Barack Obama released an economic plan aimed at Americans who are worried about their jobs, disappointed in their wages, troubled by their medical bills and panicked by the falling values of their homes.

Releasing the plan served a dual purpose for Mr. Obama: It answered charges from Sen. Hillary Clinton's campaign and Republicans that he is more rhetoric than reality, and it may help him make inroads with working- and middle-class voters who have formed Mrs. Clinton's base during much of the primary season.

The Illinois senator, coming off a string of eight straight primary and caucus victories that have propelled him to a lead in the pledged-delegate count, offered up a package of tax cuts and spending that would tilt the power of the federal government toward the middle and working classes and away from the wealthy and corporations.

[campaign]
Associated Press
Sen. Barack Obama presented his economic plan during a visit to a General Motors plant in Janesville, Wis. Wednesday.

"As the housing crisis spills over into other parts of the economy, we've seen people's entire life savings wiped out in an instant," Mr. Obama told a crowd at a General Motors Corp. plant in Wisconsin, which holds its primary on Tuesday. "It's the result of skyrocketing costs, stagnant wages and disappearing benefits that are pushing more and more Americans towards a debt spiral from which they can't escape."

The Obama campaign put the price tag for his tax cuts and spending proposals -- many of which had been announced piecemeal during the primary campaign -- at more than $140 billion a year. Campaign aides said the cost would be covered by ending the war in Iraq, closing corporate tax loopholes and allowing many of President Bush's signature tax cuts to expire in 2010.

Sen. Hillary Clinton immediately hit back at Mr. Obama, saying his best ideas were taken from her and the rest of the proposal "fails to provide universal health care, fails to address the housing crisis, and fails to immediately start creating good-paying jobs in America again" and "will not turn the economy around and provide the real relief that our people need."

Mr. Obama's campaign countered that his comprehensive energy plan was introduced a month before Mrs. Clinton's, and that Mr. Obama's infrastructure plan "invests billions more than hers does to rebuild our roads, bridges and schools."

Rick Davis, campaign manager for Arizona Sen. John McCain, the presumptive Republican presidential nominee, said both Democrats were reckless for vowing to repeal any of Mr. Bush's tax cuts. Mr. McCain himself opposed those cuts as too heavily favoring the rich when Mr. Bush initially proposed them. "John McCain is for making permanent the Bush tax cuts," Mr. Davis told reporters yesterday. "If you do not make them permanent, it's a tax increase....John McCain believes that in an economic time of the kind of instability we have now, you want lower taxes in order to spur growth."

Mr. Obama's proposal hit upon populist themes, including corporate executives who "are making more in a day than the average worker makes in a year." The plan articulated an economic worldview in which government must right the wrongs created by a system in which wealth begets access to power, and power, in turn, bestows more riches on the wealthy.

"I realize that politicians come before you every election saying that they'll change all this," he said at the GM plant in Janesville. "But how many times have you been disappointed when everyone goes back to Washington and nothing changes? Because the lobbyists just write another check. Or because politicians start worrying about how they'll win the next election instead of why they should."

To address that situation, Mr. Obama identified changes he would make in a tax code "rigged by lobbyists" to benefit big corporations and the wealthy few. "I'll change our tax code so that it's simple, fair and advances opportunity, not the agenda of some lobbyist," Mr. Obama said.

[chart]

To a degree, that vow entails bureaucratic measures; he proposed a plan to simplify the tax code by allowing the Internal Revenue Service to send taxpayers their returns already completed with income and withholding information supplied by employers and banks. The taxpayer would just check the form and file it.

But for the most part, Mr. Obama displayed his belief that the tax code -- particularly tax credits -- could be used to spread wealth more evenly among all income groups. He promised that, if elected, he would press Congress to provide $1,000 tax credits to each working family. Students would get $4,000 credits for college tuition -- in exchange for 100 hours of public service a year.

Likewise, low-income families would get a larger credit for child-care expenses, and families earning less than $75,000 would receive a $500 credit if they put $1,000 into a savings account.

Each of those credits would be available even to people who earn too little to incur any income-tax liability.

Seniors who earn less than $50,000 a year would no longer have to pay income taxes, a measure his campaign estimates would provide a tax cut averaging $1,400 for seven million seniors.

For the estimated 10 million Americans who don't itemize deductions on their tax returns, Mr. Obama would allow a 10% credit for mortgage interest. University of Chicago economist Austan Goolsbee, an Obama adviser, said it would provide a boost to those suffering most from the current subprime mortgage crisis. "All the people bearing the brunt of that pain are not getting to use the major tax incentive that we already have on the books," Mr. Goolsbee said.

For business, Mr. Obama would make the research-and-development tax credit permanent, a popular measure among manufacturers.

On the spending side, he repeated his plan to extend health insurance to those in need, a program his aides say will cost as much as $65 billion a year, to be funded by allowing some of Mr. Bush's tax cuts for the wealthiest taxpayers to expire. Economists estimate that would bring in $50 billion to $85 billion in additional revenue, depending on which tax breaks remain.

Write to Michael M. Phillips at michael.phillips@wsj.com

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